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2008 (9) TMI 342 - AT - Central ExciseCenvat reversal of credit value written off in books of accounts Held that - the inputs/spares in this case had not at all been removed from the factory - Modvat Credit need not be reversed even though 75% of the value is written off in the present case the spares/inputs are still available in the factory - There is no finding that they have been deteriorated and they would not be put to any use at all. The values only have been written off for the purpose of balance sheet. Even the amendment to Cenvat Credit Rules came later in 2007 - . Only when there is evidence that the input/spares have been destroyed or would not be capable of using it, the Modvat credit taken should be reversed. In other words, so long as the inputs are capable of being used and when they were available in the factory, there is no justification in demanding the reversal of credit and there is no justification also for imposing such a high penalty on the appellants
Issues:
Challenge to duty demand on Cenvat credit for unused inputs/spares. Analysis: The case involved appeals against Adjudication Nos. 116 & 117/2002-03 RP passed by the Commissioner of Central Excise, Visakhapatnam. The appellants were availing Cenvat credit on inputs and capital goods, but the Revenue took action as certain inputs/spares were not used in the manufacture of final products. Two show cause notices were issued, demanding duty totaling Rs. 52.19 lakhs for the period from 1997-98 to 1999-2000. The Adjudicating Authority confirmed the duty demand, imposed penalties, and demanded interest. The appellants contested, arguing that the Central Excise Department is not concerned with the value of inputs as long as they are available in the factory, and credit reversal should only occur upon removal or destruction of goods. They also cited previous Tribunal decisions in their favor. The Department referred to a Board's circular and an amendment in the Cenvat Credit Rules, emphasizing the requirement to pay back Cenvat credit if the value of inputs written off fully in the books of account. However, the Tribunal noted that the inputs/spares in question had not been removed from the factory. Referring to previous decisions, the Tribunal highlighted that Modvat credit need not be reversed if inputs are still available and capable of being used, even if their value is written off for accounting purposes. The Tribunal emphasized that unless there is evidence of destruction or unusability of inputs, credit reversal is not justified. The Tribunal found no justification for the penalty imposed on the appellants and ruled in their favor, setting aside the impugned order and allowing the appeal with consequential relief. In conclusion, the Tribunal held that the demand for duty on Cenvat credit for unused inputs/spares was unjustified as long as the inputs were available in the factory and capable of being used. The decision highlighted the importance of evidence of destruction or unusability before reversing credit and emphasized that penalties should be justified. The judgment provided relief to the appellants based on previous Tribunal decisions and the lack of justification for the duty demand and penalties imposed.
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